RBC Views Adidas Earnings Setup as Promising

Analysts from RBC Capital Markets have described the investment setup for Adidas AG ahead of its Q3 2024 earnings report as “attractive.” In a note released on Friday, they expressed optimism about the company’s ongoing revenue growth and its improving gross margin, suggesting it may even raise guidance prior to the release.

The analysts noted that consensus estimates might be undervaluing Adidas’s projected EBIT (earnings before interest and taxes) for the fourth quarter, especially when considering one-off factors and effective cost management.

RBC has increased its EBIT projections for Adidas by 12% for the fiscal year 2024 and by 9% for fiscal year 2025. The price target for Adidas stock has also been adjusted upward to €260 from €250.

The company is scheduled to release its Q3 2024 results on October 29, ahead of market opening. RBC expects that Adidas may provide preliminary information, given the conservative EBIT guidance of €1.0 billion and strong demand trends.

For the third quarter, RBC forecasts revenues of €6.40 billion, which would represent a 10% growth at constant exchange rates, or 14% when excluding the impact of the Yeezy brand. The expected gross margin stands at 50.7%, an increase from the previous year, with EBIT anticipated to be €542 million, corresponding to an 8.5% margin.

The analysis indicates strong revenue growth across various regions, with double-digit growth expected in Latin America, Emerging Markets, Greater China, and Europe, while North America is predicted to remain flat.

Key factors to watch in the upcoming report include product supply availability in Q4 2024, new product launches for Spring/Summer 2025, the current economic climate in China, and guidance on accounting standards.

RBC’s estimates now exceed the consensus by 8% for Adidas’s FY24 EBIT and by 3% for FY25 EBIT.

From a valuation standpoint, Adidas’s current trading multiples are viewed as favorable when compared to the average in the Western Sporting Goods sector, with a projected price-to-earnings (P/E) ratio of 23x for the 2026 calendar year, an enterprise value to EBIT of 15x, and an enterprise value to sales ratio of 1.5x.